Recently, there has been a significant debate on the cancellation of student loans in the US. The total student debt is an astronomical $1.6 trillion – nearly half the size of India’s $2.94 trillion economy. The raging debate, especially politically, has brought to light the failure of the US higher education system and particularly the high-cost structure of a four-year student degree. Critics in the US argue that the cost of higher education is a societal necessity and should not be so high that it becomes a 10+ year burden on students’ future cash flows, thus limiting their ability to save and spend on other productive courses of study.

Coming to India, the cost burden of education is usually borne by parents, from pre-school to higher and specialised education. While India has had its education success stories in the form of IITs and IIMs, as far as public sector contribution is concerned, the state has failed to provide quality education to its population at large. It is rare for Indians with higher disposable income to send their children to government schools.

This has resulted in massive private sector participation, not just in higher education but even in the K-12 segment. This is a departure from the rest of the world, including in most developing economies, where school education is provided by the state. India has the largest K-12 schooling sector, driven by around 50 per cent of private sector participation in terms of total fee collections globally.

An estimated $100 billion of education fees are paid every year in India. Less than 1 per cent of that amount is currently financed through education loans, putting a financial burden on parents for whom this is a significant expenditure. According to data available with us across 65,000 customers nationwide, an average Indian household with two children spends nearly 26 per cent of its total annual income only on education fees.

Traditionally, most financing support in education is for higher education. But there, too, the lack of private sector participation in financing education courses (public sector banks account for more than 90 per cent of education loans in India) means that service quality has not seen significant innovation for the end customer.

Adding to the burden on parents is the fact that educational institutions have strict fee guidelines and accept fees in advance on a half-yearly or yearly basis. Thus, for parents, especially with lower or single incomes, education fees are the highest recurring expense annually.

In recent years, fintech lending platforms have come up with innovative financing models to reduce the fee burden on parents and students. Initiatives such as zero-cost EMI for education fees, rewards, and insurance benefits along with other models, where a parent is not required to be a guarantor, are slowly becoming popular in the education ecosystem. For example, the option to pay school fees in easy and convenient bite-sized monthly instalments has come as a boon to parents, who can arrange huge amounts of funds in one go.

Besides fintech, some private educational institutions have launched their own initiatives to support parents, especially during the pandemic. For instance, a leading Mumbai-based education chain with 55 schools, launched a scholarship programme for parents whose incomes were negatively affected by COVID-19. Similar programmes were also made available by premier higher education institutions.

The above trend has been in existence in the consumer durables market for a long time. Take TV sets for example. Every 1 in 3 television is bought on EMI these days. This has led to the Buy Now-Pay Later (BNPL) concept where customers can opt for instant credit at no extra cost for small-ticket purchases, and a faster and safer checkout process. The growth of e-commerce and online and digital buying has given a major boost to BNPL over cash and credit card payments.

While there is a growing awareness of the Buy Now-Pay Later principle in the education field, it is still in a nascent stage. There is a need to popularise this concept across educational institutions in India, especially in Tier-II and III cities, and give parents in the low-income brackets an easy, affordable and convenient option – Study Now-Pay Later – to pay their children’s fees. This will reduce the financial burden on parents and enable them to improve the quality of family life, which in turn is good for our economy and society.

The author is Founder & CEO, GrayQuest